The Basics about Bankruptcy.
The U.S. Bankruptcy Code offers consumers two forms of bankruptcy protection: Chapter 7 and Chapter 13. In general Chapter 7 bankruptcy is used to discharge unsecured debt like credit cards and medical bills, while Chapter 13 bankruptcy is typically used to help people facing foreclosure or vehicle repossession keep certain property (and continue to pay for it) by catching up on the arrearages through a repayment plan. A Chapter 7 is called “straight liquidation” and a Chapter 13 is called “reorganization.” While most people believe that bankruptcy “wipes out debt” this is not legally true. What bankruptcy really does is to make discharged debt FOREVER uncollectible by anyone or entity. It is also not true that you will lose everything by filing. Every state has exemptions and basically you can keep any secured property you can afford to keep paying for.
Pre-Filing Credit Counseling and Post-Filing Debtor Education.
As part of the new bankruptcy law, you must obtain a credit counseling briefing from a United States Bankruptcy Trustee certified agency prior to filing a Chapter 7 or Chapter 13 bankruptcy, and a financial management briefing prior to discharging a Chapter 7 or 13. (See Links). These courses are typically called Credit Counseling (taken within 6 months of filing) and Debtor Education (taken prior to the Discharge Order entry.) The US Trustee’s office has a list of certified providers. Most providers offer the class online as well as in other formats. The classes are easy but unfortunately way too little, way to late and so are really intended to punish you for having financial trouble. Our office will recommend an inexpensive provider you can trust and walk you though all the requirements.
Chapter 7 & Chapter 13 Bankruptcy.
Under this chapter, unsecured debt is “discharged” which means once the bankruptcy is final the debtor never has to pay those debts again ever. Chapter 7 is often referred to as “liquidation” because the bankruptcy trustee in your case has the option of liquidating (selling) your non-exempt assets in order to pay back some or all of your creditors. However, the fact is MANY Chapter 7 bankruptcy filiers DO NOT HAVE ANY UN-EXEMPT PROPERTY, meaning that there may be nothing or not enough left over to sell. Since BAPCA, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, you must pass a Chapter 7 means test in order to qualify.
Chapter 13 Bankruptcy – The Repayment Plan.
Under this chapter, you will enter into a repayment plan with your creditors through the Court (administered by a trustee) over a three to five year period. The plan will pay off some or all of your debt and no interest will be charged on any arrearages. Chapter 13 will stop foreclosure or repossession provided you can afford to begin making the original scheduled payments and make the plan payments at the same time. Generally the plan payment is the difference between your gross income and allowable expenses. While Chapter 13′s can solve many issues, they are extremely detailed and all sorts of rules, laws, and situations can affect the payment and outcome. You must be able and committed to successfully complete this type of bankruptcy.
Which Chapter is Right for Me?
Consider Chapter 7 bankruptcy if you:
have limited and/or fixed income below the state
median for a family of your size.
have little personal property except basics like furniture, late model vehicles, and clothing. (In Florida you can usually exempt your homestead under most circumstances.)
have little to no money left after paying your basic monthly expenses.
are being garnished or sued on debts you can’t afford to pay.
have secured property and debt you can no longer afford and want to surrender without incurring a deficiency or judgement.
have unsecured debt you cannot afford to pay now or in the foreseeable future.
Consider Chapter 13 bankruptcy if you:
are above the median income for a family of your
have regular income and the ability to pay your living expenses plus a repayment plan.
have a LOT of equity in a home or another piece of property that you want to keep.
got behind on secured debt on property you want to keep but now have the income to catch up over time.
have secured property you want to legally surrender without incurring a deficiency.
are in or about to be in foreclosure and can afford to catch up arrearages in a plan over time.
are being garnished or sued on debts you can afford to pay in a plan over time.
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